A tax tsunami
is coming at the end of this year. The higher your adjusted gross
income (AGI), the closer you live to the coast where the tsunami
will hit. This will be your last opportunity to safeguard your assets
in a lifeboat and avoid getting swamped with taxes.
At the end
of 2010, the Bush tax cuts will expire and tax rates will go up
across the board. Even the 10% bracket will rise to 15%. There will
once again be a marriage penalty on two-income families. A phaseout
of itemized deductions and personal exemptions will return. The
child tax credit will drop to half. The death tax will return at
55%. The capital gains tax will rise from 15% to 20%. Tax on dividends
will increase from 15% to 39.6%.
And these are
just the first wave of tax increases for 2011. Obamacare rolls out
additional taxes each year clear through 2014. Taxes will be higher,
but the country will still be in financial trouble. Like a merchant
in danger of going bankrupt, the government is trying to raise prices
to stay solvent. Cutting overhead, nearly always the solution, isn’t
even being considered.
It is time
to take as much of your business elsewhere as you can before these
rate hikes come into effect. Mercifully the government has provided
a way for you to get a massive amount of your net worth out from
under the growing tax burden. It is time to drive a Brink’s
truck through the legal loophole of Roth conversions this year.
For those of you unwilling to take advantage of this opportunity,
the road to serfdom is the default.
If you have
an income over $100,000, this is the first year you can take money
from your traditional IRA, pay tax as though that money is ordinary
income and convert it to a Roth IRA. This procedure is called a
There are many
reasons to do a Roth conversion this year. Each of them is a new
tax burden being laid on the most productive members of society.
IRAs get you a tax deduction now, and you can delay paying taxes
until after your investment has grown. With a Roth IRA there is
no tax deduction when you deposit the money. But the investments
grow tax free rather than tax deferred. Qualified distributions
from Roth IRAs are not subject to any income taxes. Roth IRA accounts
are to your advantage if your tax rate will be higher when you withdraw
the money than it was when you contributed.